Schachenmayr v. Commissioner
| Decision Date | 20 June 1991 |
| Docket Number | Docket No. 4154-86.,Docket No. 4145-86.,Docket No. 4156-86.,Docket No. 4150-86. |
| Citation | 61 T.C.M. 2963 |
| Court | U.S. Tax Court |
| Parties | Wolfgang and Martine Schachenmayr, et al.<SMALL><SUP>1</SUP></SMALL> v. Commissioner. |
Respondent determined deficiencies in and additions to tax as follows:
Additions to Tax
Under Sections2
----------------
Petitioner Taxable Year Deficiency 6653(b) 6654
Wolfgang and Martine Schachenmayr ........... 1979 $ 25,652 $12,826
1980 24,617 12,309
Hans and Renate schachemayr ................. 1977 132,320 66,160
1978 44,949 22,475
1979 113,247 56,935
1980 160,429 80,215
Wolfgang Schachenmayr ....................... 1977 1,756 8783 63
1978 14,708 7,354 470
Taxable Year
Ended
H&W Motel Corporation ....................... March 31, 1977 46,438 23,219
March 31, 1978 61,799 30,900
March 31, 1979 34,623 17,311
March 31, 1980 41,676 20,838
After concessions, the issues for our decision are: (1) Whether respondent properly determined the additions to tax for fraud under section 6653(b), (2) whether the assessment and collection of taxes and additions to tax for the taxable years in issue are barred by the statute of limitations, (3) whether certain amounts, including bank deposits and interest on various bank accounts, constitute unreported income of the petitioners; and (4) whether petitioner Wolfgang Schachenmayr is liable for certain additions to tax for the years 1977 and 1978.
Some of the facts have been stipulated for trial pursuant to Rule 91. The stipulation of facts and accompanying exhibits are incorporated in this Opinion by reference.
Petitioners Wolfgang and Martine Schachenmayr are married individuals who resided in Lake Placid, New York, on the date their petitions4 were filed. Petitioners Hans and Renate Schachenmayr are married individuals who resided in Lake Placid, New York, on the date their petition was filed. Hans Schachenmayr and Wolfgang Schachenmayr are brothers, and, during the years in issue, Hans Schachenmayr was the sole shareholder of petitioner H&W Motel Corporation (H&W Corporation), a corporation having its principal place of business in Lake Placid, New York, at the time its petition was filed.5
Hans Schachenmayr moved to the United States from West Germany in 1960. Having worked in West Germany as an apprentice butcher, apprentice cook, and apprentice waiter, Hans Schachenmayr obtained a job in the United States with KLM Royal Dutch Airline, which involved supervising a kitchen staff. Hans Schachenmayr worked for KLM for 7 years, after which time he became part owner of a restaurant. The restaurant venture failed within several months, after which time Hans Schachenmayr worked for several years as a sales manager for an import company in New York City.
In 1970, Hans Schachenmayr moved to Lake Placid, New York, and purchased a 50-percent interest in a motel and restaurant (the Adirondack Inn6 and the Black Stallion Restaurant). Hans Schachenmayr's partner in the motel and restaurant venture was a Mr. Winfried Holderied, and in 1972, Hans Schachenmayr and Mr. Holderied formed petitioner H&W Corporation, to which they transferred the Adirondack Inn and Black Stallion Restaurant. In 1974, after litigation between Hans Schachenmayr, Mr. Holderied, and a mortgagee, Hans Schachenmayr purchased Mr Holderied's interest in H&W Corporation and became its sole shareholder. During 1974, Hans Schachenmayr also incorporated U&H Enterprises and became its sole shareholder. U&H Enterprises purchased the real estate parcel directly in front of and contiguous to the Adirondack Inn in 1974.
Ulrich Schachenmayr is a brother of Hans Schachenmayr and Wolfgang Schachenmayr who worked for International Business Machines (IBM) and resided in Munich, West Germany, during the years in issue. In 1974, Ulrich Schachenmayr executed a general power of attorney form authorizing Hans Schachenmayr to act on his behalf regarding all matters. The power of attorney form was filed with the Clerk's Office, Essex County, New York, in 1979.
Wolfgang Schachenmayr is an architect and construction engineer who obtained an engineering degree from the University of Munich in West Germany in 1970. After obtaining his degree, Wolfgang Schachenmayr worked for a well-known architectural firm in West Germany and was in charge of a project involving a city hall. Wolfgang Schachenmayr then served as site supervisor for a high school project. During 1974, Wolfgang Schachenmayr spent time in West Germany working on the construction of a home for his family, and in 1975, Wolfgang Schachenmayr moved to Montreal, Canada, where he again worked for an architectural firm. After being laid off from his job in Montreal, Wolfgang Schachenmayr moved to Lake Placid in 1976 and became intimately involved with Hans Schachenmayr in the operation and management of the Adirondack Inn and Black Stallion Restaurant.
Renate Schachenmayr came to Lake Placid from West Germany in 1977 and married Hans Schachenmayr in that year. Renate Schachenmayr had attended high school and secretarial school in West Germany and had worked as a secretary there but obtained little or no training in accounting and no bookkeeping experience. Upon marrying Hans Schachenmayr, Renate Schachenmayr commenced work at the Adirondack Inn. Her responsibilities eventually included bookkeeping for Hans Schachenmayr's hotel and restaurant businesses. As bookkeeper, Renate Schachenmayr recorded expenses paid by check in a journal or ledger but recorded cash receipts and expenses on sheets of paper which were placed in a box for Hans Schachenmayr. Renate Schachenmayr never met the accountant, Mr. Henry Gelles, who prepared Hans and Renate Schachenmayr's 1977 and 1978 tax returns and the returns of H&W Corporation for its years ended March 31, 1977, March 31, 1978, and March 31, 1979.
During the years in issue, 32 bank accounts (including nine C.D. accounts) were maintained in the names of one or more of the petitioners and their various businesses, and in the name of Ulrich Schachenmayr. Hans Schachenmayr was listed as having signature authority over all of the accounts in Ulrich Schachenmayr's name. Ulrich Schachenmayr never reported the interest income on the accounts in his name to the West German taxing authorities, although West German law required interest earnings from U.S. sources to be reported, and no U.S. income tax returns have ever been filed by or on behalf of Ulrich Schachenmayr. Numerous transfers were made among the various business and personal accounts maintained by petitioners during the years in issue, and numerous deposits were made to such accounts either in cash or in traveler's checks which were endorsed with the payee sections left blank.
By 1977, petitioners were aware that Lake Placid, New York, had been selected as the site of the 1980 Winter Olympics. Hans Schachenmayr decided that a fast food restaurant would have the potential for profitability in connection with the Olympics. During 1977, a restaurant building was constructed on the tract of land owned by U&H Enterprises, and Hans Schachenmayr borrowed $100,000 from a bank in West Germany for that purpose. Wolfgang Schachenmayr personally supervised the construction of the restaurant and acted as general contractor for the project. In order to obtain a contractor's discount for the construction materials, Wolfgang Schachenmayr operated under the name Holiday Construction Company. The Steak and Burger Restaurant, which had been constructed by Wolfgang Schachenmayr, opened in 1978 and was operated by Hans Schachenmayr as a sole proprietorship, with Wolfgang Schachenmayr serving as manager.
In addition to acting as general contractor and manager for the Steak and Burger Restaurant, Wolfgang Schachenmayr also supervised the construction of two personal residences on Mirror Lake (the Mirror Lake homes) in Lake Placid between 1978 and 1980. It was hoped by petitioners that the Mirror Lake homes could be rented out during the Olympic period, but they were not completed in time.
One of the Mirror Lake homes was constructed on a tract of land the deed for which was recorded in Wolfgang Schachenmayr's name in 1976. The funds used to purchase that land came from a checking account in the name of H&W Corporation. By deed dated January 2, 1982, such land was transferred by Wolfgang Schachenmayr to Ulrich Schachenmayr. The transfer, however, was never recorded. The funds used to construct the home on this tract of land came primarily from a checking account in Wolfgang Schachenmayr's name (the 932 Account). When the home was completed, however, Hans and Renate Schachenmayr moved in, and they continued to reside there as of the date of trial.
The second Mirror Lake home was built on a tract of land the deed for which was recorded in Ulrich Schachenmayr's name in 1977. The funds utilized to purchase the underlying land,...
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